A report released November 13 by the Consumer Federation of America purports to be a “review of auto insurance rate regulation in America” that shows “how best practices save billions of dollars.” However, according to Robert Detlefsen, vice president of public policy for the National Association of Mutual Insurance Companies, the report reinforces CFA’s “well-deserved reputation for manipulating statistics and omitting critical information to reach pre-fabricated conclusions.”

Detlefsen outlined several examples demonstrating why the report’s data and analysis cannot be considered reliable:

CFA claims that “the average expenditure on auto insurance” country-wide increased by 43.3 percent between 1989 and 2010. “CFA doesn’t say whether this percentage increase is adjusted for inflation, nor does it indicate whether the ‘average expenditures’ mentioned throughout the report are per policy, per capita, or per household,” Detlefsen said. “The price of the average vehicle rose considerably between 1989 and 2010, as did the number of cars owned per household and even per capita. As the total insured value of automobiles increased, it stands to reason that the amount spent on auto insurance would increase as well.”

The report fails to consider the most important determinant of auto insurance prices: claim costs. “Consequently, the reader has no way of assessing the extent to which the increases in the amount spent on auto insurance in any given state can be attributed to increases in insurers’ claim costs in that state,” Detlefsen said.

Citing large percentage increases in expenditures in particular states does not account for the possibility that rates were relatively low in these states in 1989 and still relatively low in 2010.

The report attributes California’s healthy insurance market entirely to provisions contained in Prop 103 while discounting other relevant factors. “In particular, the report gives short shrift to changes in the California legal environment that drastically reduced insurer claim costs,” Detlefsen explained. “These developments have been thoroughly documented and analyzed in a pair of reports prepared by actuary David Appel. The CFA report appears to obliquely reference these reports but does not cite them.” The reports, which “thoroughly debunked” Prop 103 “myths,” can be viewed here and here.

Detlefsen points out that noticeably missing from the report is any mention of the experience of states that have shifted away from the onerous price regulation favored by CFA toward more market-oriented regulation. Insurance scholars have studied the effects of such reforms in states such as South Carolina, New Jersey, and Massachusetts. “For example, a 2012 study by insurance economist Sharon Tennyson of Cornell University provides strong support for the idea that strict government oversight of automobile insurance rate-setting is unnecessary, and may even be detrimental to markets and consumers.”